CNOOC quits Kenya oil drill and heads for Uganda

Chinese oil firms have been eyeing African countries to meet growing oil needs at home and has announced a $16 billion programme for prospecting on continent. Photo/REUTERS

China National Offshore Oil Corporation (CNOOC) is exiting the Kenya oil exploration market in a move that has shifted the balance of power in the oil and prospecting business to Western nations.

The Chinese firm, which was the single largest investor in the country’s exploration work three years ago, is turning its focus to Uganda after failing to strike commercially viable oil or gas in Kenya.

The firm had six of the country’s 22 exploration blocks but its exit is set to leave the bulk of the exploration work in the hands of US firm Anadarko—which has five blocks—and Tullow Oil that was awarded five blocks in August.

“CNOOC is leaving the Boghal (Isiolo) well before the end of the year (next week). Africa Oil will remain because they have expertise in oil exploration,” said Energy permanent secretary Mr Patrick Nyoike.

Its exit from Isiolo comes months after it left Lamu in August and four other blocks in 2008—move that is set to excite the western nations that have been growing uncomfortable with the Chinese’s growing interests in emerging countries such as Kenya.

The state-owned CNOOC had been a major factor in oil exploration in Kenya after securing exclusive exploration rights in 2004 from Kibaki’s government, which had adopted policy to look East for investments and aid as traditional partners like Western Europe and US become more tight-fisted.

All European companies seeking oil exploration licences were then asked by the Energy ministry to go into joint ventures with CNOOC in a process technically known as farm-ins.

This prompted a number of Western firms to silently complain over the alleged favouritism of Chinese firms in award of government contracts ,including infrastructure projects.

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Kenya has also opened its markets to Chinese goods as shown by the mushrooming of China products in Kenya’s major urban centres, which collectively has pushed its imports to Kenya to Sh74.5 billion in 2009 from Sh22.9 billion in 2006.

Indeed, the current momentum of oil exploration only started with a visit to China in 2004 by President Mwai Kibaki.

On his return, the government — in an unprecedented act of generosity -— gave the state-owned CNOOC exclusive rights to a total of six out of 11 oil exploration blocks, including the fiercely contested Block 9 in Isiolo and 10A in the Mandera area.

After two years, the Chinese gave back four blocks to the Government, retaining block L2—which it gave up in July-- Block 9 which its plans to surrender next week, marking the end of China’s dealing in Kenya’s oil search.

CNOOC has had a heavy presence in Isiolo, an area geologically similar to Southern Sudan that has substantial oil finds—which raised prospects of Kenya striking oil or gas.

Industry analyst George Wachira concurs that the exit of the Chinese from Isiolo implies that prospecting in the area is not good, especially with other high potential areas in the region.

“Their exit means prospecting in Isiolo area is not good. They want to cut losses and run to Lake Albert and join Tullow and hope to jump the lake to DRC side,” said Mr Wachira. “But there is hope of a find as active oil and gas exploration continues in the Turkana County and in the coastal areas.”

Anadarko—which helped Madagascar find gas— is active at the coast while Tullow, which is credited with Ugandans oil search, is busy in Turkana.

The Chinese firm has applied for exploration licence in Uganda alongside French marketers Total and Italy’s Eni.

They announced a $16 billion programme for entering into Africa’s oil rich nations.

Uganda discovered commercial quantities of hydrocarbons in the Lake Albert rift basin along its western border with the Democratic Republic of Congo in 2006.

Exploration firms estimate reserves of up to 2.5 billion barrels.

Kenya has 34 oil blocks and it has awarded 22 blocks and the western nations collectively now control 16 of the blocks.

Industry analysts reckon that Kenya is better off with western nations, arguing that the Chinese firm lack expertise for oil exploration and that the Asian nation is good at mining oil that has already been discovered.